US fourth quarter growth raised up to 2.6%

Updated / Thursday, 27 Mar 2014 14:26

US gross domestic product expanded at a 2.6% annual rate in the last three months of 2013

US economic growth was slightly faster than previously estimated in the fourth quarter, displaying underlying strength that could bolster views that the slowdown in activity early in the year would be temporary.

US gross domestic product expanded at a 2.6% annual rate, the Commerce Department said today, up from the 2.4% pace it reported last month.

The revision reflected a stronger pace of consumer spending than previously estimated.

Economists polled by Reuters had expected fourth-quarter GDP growth would be raised to a 2.7% rate. The US economy had expanded at a 4.1% pace in the July-September quarter.

The composition of growth in the fourth quarter suggested underlying strength in the economy, with consumer spending raised sharply higher and the pace of restocking by businesses not as robust as previously estimated.

In addition, business spending on equipment was a bit stronger than previously estimated and the decline in government outlays was a little less pronounced.

The revisions suggested the economy had momentum as 2013 ended and should regain strength once the effects of unseasonably cold weather that dampened activity at the beginning of this year start to abate.

Growth in the first quarter is expected to have slowed to a pace of around 2%.

Output has also been dampened by the expiration of long-term unemployment benefits, cuts to food stamps and businesses placing fewer orders with manufacturers as they work through a pile of unsold goods in their warehouses.

Consumer spending grew at a more brisk 3.3% rate, reflecting strong growth in services. That reflected increased spending on health care and utilities.

Consumer spending accounts for more than two-thirds of US economic activity and was previously reported to have increased at a 2.6% rate. This was the fastest pace in three years and contributed more than two percentage points to GDP growth.

Inventories, previously reported to have risen by $117.4 billion in the fourth quarter, were revised down to $111.7 billion. The downward revision is positive for near-term economic growth.

With fewer stocks on their shelves or in their warehouses, businesses now are more likely to need to place new orders or otherwise ramp up production to meet demand.

Business spending on equipment was revised up, but outlays on non-residential structures were lowered. Spending on home building and government outlays was not as weak as previously estimated.

US pending home sales fall again in February

Meanwhile, US pending home sales continued to sag in February, declining for the eighth month in a row amid higher prices and higher mortgage rates, the National Association of Realtors said today.

The NAR pending home sales index, based on contract signings, fell to 93.9 last month from 94.7 in January.
February's level was the lowest since October 2011. A year ago, the index stood at 104.9.

A combination of tight supplies, rising prices and, at the same time, rising mortgage loan rates has put a dent in home buying.

Lawrence Yun, NAR chief economist, said harsh winter weather had been an ingredient as well in the slowdown, and that rising new home construction could spur a rebound in buying as the cold weather ebbs.

NAR expects five million sales of second hand homes this year, slightly less than last year. But it sees a 19% rise in new home construction as well, to about 1.1 million units.

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